- The Washington Times - Tuesday, December 14, 2004

The government is investigating Maximus Inc. for its work with Medicaid, the federal health care program for the poor, an examination the Reston government contractor says could involve fraud.

The management consulting firm for state and local governments said last week that it was subpoenaed in October for its records involving Medicaid reimbursement claims the company prepared for the District.

The U.S. Attorney’s Office appears to be investigating the Medicaid claims for fraud, the company said in a Securities and Exchange Commission filing Friday.

Maximus spokeswoman Rachael Rowland said the company is cooperating fully with federal authorities.

“The federal government routinely investigates Medicaid claims to make sure they are not fraudulent,” Ms. Rowland said, and the company has undergone multiple government investigations in the past.

Channing Phillips, spokesman for the U.S. Attorney’s Office for the District of Columbia, would not comment on the case.

The announcement comes as Maximus is reorganizing into three operating units to cut costs and strengthen management.

Maximus shares on the New York Stock Exchange closed yesterday at $30.91, up 5 cents from Friday’s price at $30.86. The stock closed at $31.81 a week ago.

The company, with 5,200 employees in 220 offices, does most of its work in health and human services for the government. Its larger contracts come from operating government health services, like a $268 million, 10-year contract Maximus won last month to manage the health insurance system in British Columbia.

William Loomis, a managing director at Legg Mason Wood Walker Inc., said the investigation would not change his “buy” rating for Maximus.

The company’s low performance expectations combined with an overall improvement in state and local government budgets outweighed Maximus’s risks, Mr. Loomis said.

Mr. Loomis does not own Maximus stock but Legg Mason is seeking a banking relationship with the company.

Matthew McKay, an analyst with New York investment bank Jefferies & Co. Inc., called the investigation “one more red flag.”

Maximus has experienced sluggish business in the past fiscal year ending in September, Mr. McKay said.

The company also has several contracts that it will have to compete for again in the next two years, increasing the risk that Maximus will lose business, he said.

Mr. McKay, who advised investors to hold their stock, last month lowered his earnings-per-share estimates for fiscal 2005 to $1.78 per diluted share from $2.

The company’s income for fiscal 2004 ended Sept. 30 increased 8 percent to $38.3 million ($1.76 per diluted share) from $35.3 million ($1.66) last year. Sales for the year also rose 8 percent to $603.8 million from $558.2 million in fiscal 2003.

Mr. McKay does not own any shares of Maximus and Jefferies has no business with the company.

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